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What's most striking about the commercial real estate market is how quiet it is.

"It's like a storm is brewing and it has everyone standing on the sidelines," says Bob Spratt, president of commercial real estate firm Hill Partners Inc.

And that near silence is expected to continue until 2010, when the market will likely reach its bottom, with values declining 40% to 50% off 2007 market peaks, according to the Emerging Trends in Real Estate 2010 Report recently released by PricewaterhouseCoopers LLP and the Urban Land Institute.

"Commercial real estate is lagging all asset sectors and it will come back slowly, it will be a long slog," says Jonathan Miller, author of the report and a consultant with PricewaterhouseCoopers.

What will be the tell-tale signs that at last the market has scraped the bottom? "When we start to see more and more institutional investors dipping more than just a toe in the water, which indicates the desire to start placing significant real estate bets," says Greg Genovese, president of the Securities Division at Thompson National Properties.

Until there is improvement in unemployment figures, there aren't going to be any improvements in the commercial real estate market, says Howard Ecker, CEO of commercial tenant representation firm Howard Ecker + Company. Unemployment is key. When hiring increases, so does the need for additional office space.

Calculating Values Against a Backdrop of Uncertainty

Meanwhile, says Michael Kornacki, a partner in the real estate practice of law firm Fox Rothschild, there is a great deal of ambiguity regarding value, and there is still a disconnect between the perceived value of an asset and the availability of cash to acquire it. Banks are lending, he says, but on terms that are much more onerous than those to which borrowers have grown accustomed, terms that many potential borrowers are not willing to live with, or not capable of living with.

Economic indicators are fluctuating and sometimes appear to tell contradictory stories about where the economy is headed. Take a project like a shopping center or hotel: The interested investor must try to calculate values against a backdrop of uncertainty like future revenues, tenancies and vacancies, for example. Simply put, "The discounts have to justify the risks," says Diane Henry, of Red Real Estate.

Miller agrees. "Debt is of much importance on the real estate side. Until the debt market comes back, until banks resume lending, the recovery will be delayed," he says.

Distressed owners are not yet willing to depart with property at the prices buyers are willing to pay. But it's only a matter of time before those owners, mostly banks or financial institutions that financed commercial real estate over the last three years, will sell their failed assets, get back in the game and unload.

"As more and more borrowers find themselves under water, they will give the keys back to lenders. This will put properties out there," says Miller. Those who need a solution to their troubles will be motivated to make something happen, adds Larry Shulman, founding partner of the law firm Shulman Rogers.

Interest will come from elsewhere, too. "There won't be a land rush. But private equity investors have built war chests. Foreign investors will show up and there will be activity from REITs, which have recovered some of their losses. There are players out there, just waiting for the bottom," says Miller.

Stabilization, Prudence and Great Deals Ahead

Those who buy in 2010 and 2011 will see some of the best deals in generations and be able to buy at or near cyclical lows.

And where will they go? Back to old hot spots -- Washington, D.C., New York, San Francisco, Boston, Seattle, Austin, Denver, Houston, Raleigh/Durham and San Jose -- global gateway markets on the East and West Coasts. "Those areas were good, they're better today and will be where the action is," says Miller. Areas where unemployment is high, such as some parts of the Midwest, will recover more slowly.

Any sustained commercial real estate buying will serve the purpose of not only stabilizing pricing, but will also help mitigate perceived increases in volatility in the market, says Genovese. Then too, any buying is good; it will mean there is some liquidity in the marketplace and values will be firmly established, says Jeffrey Rogers, president of Integra Realty Resources. "The fallout will be further write-downs from the banks, further stressing our banking industry,"he adds.

What though, might the market look like beyond 2012? "It will return to normal in the sense that we will be looking at deals on a return basis that is consistent with the past," says Wayne Rogers, founder of Wayne Rogers & Co. "The only bogey in this scenario is the impact of potential inflation and what that might do to interest rates, the dollar and consumer buying power."

There also might be a return to prudent underwriting of properties. "This means debt levels underwritten on current and past performance rather than projected," says Bob Spratt of Hill Partners. "Investors/owners who have the expertise to underwrite a market and project property performance based on reasonable rent growth and occupancy in specific markets; the exit of investors purchasing properties for a quick flip based on capital structure engineering rather than property level performance."

Miller is optimistic. "Transaction volume will increase, rents will increase, occupancy will increase. Not sharply, not fast, but the market will come back," he says.